Inflation Hedge Opportunity Portfolio, Series 16

When it comes to investing — whether for income or for growth — you can't afford to ignore the eroding effect inflation can have on the value of your assets. Inflation is essentially a measure of the increase in the price of goods and services. According to the U.S. Bureau of Labor Statistics, inflation has reduced Americans' purchasing power in every year but three dating back to 1945.

The most commonly referenced measure of inflation is the Consumer Price Index (CPI). The CPI is based on a monthly survey by the U.S. Bureau of Labor Statistics and it compares changes in the prices paid by consumers for a representative basket of goods and services. The monthly CPI reading is widely considered a useful way to measure prices over time.

In today's economic environment, inflation has largely been held in check, which is why it might be easy to overlook inflation when building your investment portfolio. However, there is growing concern that government spending could spark inflation. The U.S. government is having to borrow unprecedented amounts to cover record budget deficits. In budget year 2009, the deficit hit an all-time high of $1.41 trillion. In 2010 it reached $1.29 trillion and in 2011 it reached $1.30 trillion. For 2012, it was estimated to reach $1.33 trillion.¹

¹ 1Bloomberg

Portfolio Objective

The trust seeks above-average total return; however, there is no assurance the objective will be met. The portfolio terminates approximately two years from the initial date of deposit.

Investing to Counteract Inflation

Like stock returns, economic growth, and interest rates, inflation is one of those variables you can't control. But, as an investor, you can control how your investment dollars are allocated. For many investors, investing in natural resources, precious metals, real estate investment trusts (REITs) and bonds that typically react favorably to inflation are ways to hedge against inflation in a properly diversified portfolio.

The Inflation Hedge Opportunity Portfolio is a professionally-selected unit investment trust which invests in exchange-traded funds (ETFs) which are designed to track gold, silver, REITs, senior loans or government bonds and in common stocks of agriculture companies, energy companies and materials companies (including metals and mining companies). Many factors will affect the value of the securities in the trust and there can be no assurance that the trust will achieve a positive return during an inflationary period.

Gold and Precious Metals
Typically, gold moves in the opposite direction of the dollar. The U.S. dollar has depreciated recently against the euro while the price of gold has increased according to Bloomberg. Additionally, the Federal Reserve has aggressively lowered the federal funds target rate in an attempt to boost the economy, but lowering the rate also tends to depress the dollar. This may encourage investors to continue to shift assets into commodities such as gold, which is historically known for holding value during times of rising inflation. Investing in the commodities themselves is not the only way to hedge against rising inflation.Mining companies also tend to benefit as their earnings should improve if the price of gold and other precious metals rise. Such hedging may also be accomplished by investment in ETFs which themselves invest in commodities such as gold and silver.

Energy
When economic activity accelerates, whether in the U.S. or abroad, the global demand for natural resources grows.The resulting increase in the underlying commodity prices historically generates higher profits for companies in the energy sector and translates into higher returns for investors.

REITs
Real estate has traditionally been a good hedge against higher inflation. Historically REITs have performed well in times when the economy improves and inflation and interest rates trend higher. In addition, an improving economy tends to lead to better occupancy rates in commercial buildings and malls which often results in dividend increases among REITs.

Bonds
The negative effects of inflation on bonds may be offset through ETFs which invest in inflation linked bonds.

Inflation-linked government bonds, commonly known in the U.S. as Treasury Inflation- Protected Securities (TIPS), are securities issued by governments that are designed to provide inflation protection to investors. The coupon payments and principal value on these securities are adjusted according to inflation over the life of the bonds.

You should consider the portfolio's investment objectives, risks, and charges and expenses carefully before investing. Contact your financial advisor or call First Trust Portfolios, L.P. at 1.800.621.1675 to request a prospectus, which contains this and other information about the portfolio. Read it carefully before you invest.

Risk Considerations:
An investment in this unmanaged unit investment trust should be made with an understanding of the risks involved with an investment in a portfolio of common stocks and exchange-traded funds.

Common stocks are subject to certain risks, such as an economic recession and the possible deterioration of either the financial condition of the issuers of the equity securities or the general condition of the stock market.

ETFs are subject to various risks, including management's ability to meet the fund's investment objective, and to manage the fund's portfolio when the underlying securities are redeemed or sold, during periods of market turmoil and as investors'perceptions regarding ETFs or their underlying investments change. Unlike open-end funds, which trade at prices based on a current determination of the fund's net asset value, ETFs frequently trade at a discount from their net asset value in the secondary market.

One of the ETFs in the portfolio invests in senior loans. Senior loans are generally below investment grade quality ("high-yield" securities or "junk" bonds). Investing in such securities should be viewed as speculative and you should review your ability to assume the risks associated with investments which utilize such securities. High-yield securities are subject to numerous risks including higher interest rates, economic recession, deterioration of the high-yield securities market, possible downgrades and defaults of interest and/or principal. High-yield security prices tend to fluctuate more than higher rated securities and are affected by short-term credit developments to a greater degree.

A portfolio which is invested in equity securities of foreign issuers is subject to additional risks, including currency fluctuations,political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers.Risks associated with investing in foreign securities may be more pronounced in emerging markets where the securities markets are substantially smaller, less liquid, less regulated and more volatile than the U.S. and developed foreign markets.

The value of the securities held by the trust may be subject to steep declines or increased volatility due to changes in performance or perception of the issuers.

The portfolio is concentrated in stocks in the energy and materials sectors making it subject to additional risks, including limited diversification. The companies engaged in the energy sector are subject to certain risks, including price and supply fluctuations caused by international politics, energy conservation, taxes, price controls, and other regulatory policies of various governments.

The companies engaged in the materials sector, including companies within the precious metals industry, are subject to price and supply fluctuations, excess capacity, economic recession, domestic and international politics, government regulations, volatile interest rates, consumer spending trends and overall capital spending levels. Companies in the precious metals industry are subject to risks associated with the exploration, development, and production of precious metals including competition for land, difficulties in obtaining required governmental approval to mine land, inability to raise capital, increases in production costs and political unrest. In addition, the price of gold and other precious metals is subject to wide fluctuations.

The portfolio also invests in agribusiness companies. Agribusiness companies are subject to cyclicality of revenues and earnings, economic recession, currency fluctuations, changing consumer tastes, extensive competition, excess capacity, product liability litigation and governmental regulation and subsidies.

Certain of the ETFs invest in REITs. Companies involved in the real estate industry are subject to changes in the real estate market, vacancy rates and competition, volatile interest rates and economic recession.

Certain of the ETFs invest in commodities. Commodity prices are subject to several factors including, price and supply fluctuations, excess capacity, economic recession, domestic and international politics, government regulations, volatile interest rates, consumer spending trends and overall capital spending levels.

Certain of the ETFs invest in foreign and domestic inflation-protected securities. Inflation-protected securities are subject to numerous risks including changes in interest rates, economic recession and deterioration of the bond market or investors' perception thereof.

This unit investment trust is not an absolute return investment vehicle.